The9 Reports Q4 Financial Results

By TechSecurityChina.com Editor
February 15, 2007

Chinese online game operator The9 (NCTY) has announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2006.

For the fourth quarter of 2006, The9 reported net revenues of CNY282.7 million, a 21% increase from the third quarter of 2006 and 33% increase from the fourth quarter of 2005. For fiscal year 2006, net revenues increased by 112% to CNY985.8 million from CNY465.0 million in fiscal year 2005.

The substantial year-over-year revenue increase is primarily the result of The9 commencing commercial operation of Blizzard Entertainment’s World of Warcraft game in mainland China in June 2005. In fiscal year 2005, approximately seven months of revenues from WoW was recorded, whereas in fiscal year 2006, WoW was in full year operations. For the fourth quarter and fiscal year 2006, net revenues attributable to the operations of WoW, including game playing time, merchandise sales and other related revenues, were CNY281.4 million and CNY977.6 million, respectively.

For the fourth quarter of 2006, online game services gross revenues were CNY296.7 million, a 23% increase from the third quarter of 2006 and 34% increase from the fourth quarter of 2005. For fiscal year 2006, these revenues were CNY1,028.0 million, compared with CNY466.6 million in fiscal year 2005.

For the fourth quarter of 2006, gross revenues from game operating support, website solutions and advertisement, were CNY0.5 million, a decrease of 81% from the previous quarter and 44% from the same period of last year. For fiscal year 2006, these revenues were CNY4.8 million, a decrease of 21% from CNY6.1 million in fiscal year 2005. The decrease in these revenues was mainly due to the decline in revenues of the MU game.

Gross profit for the fourth quarter of 2006 increased by 25% quarter-over- quarter and 38% year-over-year to CNY134.7 million, mainly due to increased revenues. Gross profit margin increased to 48% for the fourth quarter of 2006 from 46% in both the previous quarter and the same period of last year.

For the fourth quarter of 2006, operating expenses were CNY54.7 million, a 23% increase from CNY44.6 million in the previous quarter and 22% increase from CNY44.7 million in the same period of last year. For fiscal year 2006, operating expenses totaled CNY191.6 million, a 16% increase from CNY164.9 million for the fiscal year of 2005.

For the fourth quarter of 2006, profit from operations increased by 26% quarter-over-quarter and 52% year-over-year to CNY80.0 million. Operating margin for the fourth quarter of 2006 was 28%, compared to 27% in the third quarter of 2006 and 25% in the fourth quarter of 2005.

As at December 31, 2006, the company’s total cash and cash equivalents balance was CNY937.8 million.











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